How To Manage Cash Flow for Construction Projects

Manage Cash Flow for Construction Projects

Working with a construction equipment loan provider plays a crucial role in managing cash flow. However, this is only one piece of a complex puzzle. Without proper cash flow management, companies may struggle to complete projects on time and within budget. Delays and change orders also cost money, which may affect company profits and client satisfaction.

1. Research Your Client

The general advice in construction is for clients to double-check that contractors are bonded, licensed, and insured. However, construction companies should do some digging too. Do clients have a letter from their bank confirming funding?

If they intend to fund the project without financing, what is their financial situation? If this a commercial enterprise, do they have a reputation for paying in full and on time?

2. Choose Profitable Projects

Companies that are determined to get more business often try to undercut the competition with lower prices. This might help you to score the project, but is it profitable? If it comes down to paying workers lower rates to manage cash flow, your workers may not feel as motivated to do good work here as on other projects.

Always start with a realistic budget. Stay away from projects that do not promise a good return on investment.

Profitable Construction Projects

3. Conduct a Cash Flow Analysis

To determine if a project is profitable, you need to complete a cash flow analysis. You can then use the information for several purposes. The first is a feasibility test to determine if the project is profitable.

The second is to provide a reasonable estimate to your client with basic breakdowns. Finally, if awarded the project, a deeper cash flow analysis helps you create a timeline of disbursements throughout the length of the project.

4. Negotiate a Profitable Contract

Calculating what and when you need it ahead of time makes the negotiation process much easier. You can provide transparent and objective information to the owner of the project to show precisely why your distribution timeline is so important to maintain. Note that there’s no need to disclose all your figures during the negotiation process.

Some company operations and costs should be kept confidential. Share enough to build trust and move negotiations in favor of both your business and the client.

5. Prioritize Payment Collections

Some construction companies assign this duty to the project manager, while others delegate it to the admin staff. Whoever becomes responsible for the task needs to ensure it gets done on time and that all submitted documents go to the correct person. This reduces any delays you may encounter in securing your construction equipment loan.

Some contractors worry that asking for money when it is not submitted on time could hurt the business relationship, but lack of money hurts your business. Be persistent but stay respectful.

construction equipment financing

6. Minimize Change Orders

Both construction companies and their clients hate change orders. When they arise, both parties end up losing something in the exchange. You might not be able to charge clients for all the factors that led to the change order.

When you can, clients end up spending more money than planned for. The delays can also make it impossible for them to move into their home or start their business on the original date they planned for.

7. Execute Closing Policy

Every construction company should have a policy in place for closing out a project. This involves commitments to not just your client, but also your workers, the bank, and shareholders. Create a checklist and work your way through. Here are a few things worth adding to your checklist:

  • Conduct pre-inspection work.
  • Confirm completion of all tasks outlined in the project.
  • Pay all remaining wages to employees and contract workers.
  • Conduct walk-through with the client to confirm construction completion.
  • Obtain a certificate of occupancy.
  • Collect all outstanding funds.

Construction equipment financing helps companies to free up monthly revenue that they can spend on other important aspects of doing business. This spreads out the burden of upfront capital investments while the company works to collect revenue at each phase of the project.

At First Capital Business Finance, we offer construction equipment loans and other financing services to help businesses to expand. Over the past few years, we have found that the best time to seek financing is before starting a new project. Give us a call at 888-939-1036 to get prequalified for a loan today.

How To Manage Cash Flow for Construction Projects | First Capital Business Finance



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